EUR/JPY surrenders half of intraday gains after steady Eurozone flash PMI

• EUR/JPY surrenders some of its intraday gains and drops to near 157.50 after the release of the flash Eurozone, Germany and France PMI data for January.
• The Eurozone Composite PMI remained steady at 50.2, lower than expectations of 50.4.
• The Japanese Yen underperforms amid a decline in demand for safe-haven assets.

The EUR/JPY pair gives up half of its intraday gains and falls to near 157.50 from the intraday high of 158.23 in European trading hours on Friday. The asset faces selling pressure after the release of the preliminary HCOB Purchasing Managers' Index (PMI) data of the Eurozone and its major nations Germany and France.

The PMIs report showed that the French Composite PMI contracted for the straight sixth month in February. While the overall business activity expanded at a faster-than-expected pace in Germany, which offered relief to the whole continent.

The Eurozone Composite PMI came in at 50.2, similar to its prior release but lower than estimates of 50.4. Activities in the manufacturing sector contracted but at a slower pace. However, the service sector activity expanded but at a slower pace.

Earlier in the day, the Euro (EUR) was underperforming its risky peers in a risk-on market mood. The outlook of the Euro has already been vulnerable as traders have fully priced in three more interest rate cuts by the European Central Bank (ECB) this year. ECB dovish bets are based on increasing confidence that the Eurozone inflation will sustainably return to the 2% target this year.

ECB officials have also been worried about deepening risks of inflation undershooting the central bank's target of 2%. Growing risks to inflation remaining persistently lower have been stemmed from weak economic outlook, partly by slowdown in domestic consumption and fears of potential tariffs from the United States (US).

Meanwhile, the Japanese Yen (JPY) weakens across the board as its safe-haven appeal has diminished. However, its outlook has strengthened as hotter-than-expected National Consumer Price Index (CPI) data for January has increased market expectations that the Bank of Japan (BoJ) will raise interest rates again this year. Japan's headline CPI came in at 4%, higher than 3.6% reading in December. This is the highest reading seen since January 2023. National CPI excluding Fresh Food, which is closely tracked by BoJ officials, rose at a faster-than-expected pace of 3.2%.